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FRC waters down governance overhaul as King’s Speech omits audit reforms

Britain’s auditing watchdog has revealed over half of its proposed changes to corporate governance rules are being ditched, as it described the move to omit legislation from the King’s Speech to create a more powerful accounting regulator as “disappointing”.

The chief executive of the Financial Reporting Council (FRC), Richard Moriarty, said the regulator would now press ahead with only a “small number” of the 18 proposals set out in its consultation in May.

He put part of the decision down to the FRC’s need to balance “supporting UK economic growth and competitiveness”, as well as to boost trust in governance, following on from responses to its consultation over the summer.

He said it was “disappointing” that the Government had delayed primary legislation to create a more powerful accounting regulator, leaving it out of the King’s Speech.

But the FRC said it would continue to use the tools available to it “to best effect”.

However, the FRC on Tuesday also announced a major row back on its earlier aims to overhaul the UK corporate governance code.

He said: “We have carefully considered the full range of feedback we received, as well as taking into account our objectives to enhance trust and confidence in governance whilst supporting UK economic growth and competitiveness.

“In doing so, we are also conscious there is currently a much wider debate about business reporting requirements and burdens across the economy.

“Taking all these factors into account, the FRC considers the right balance at the current time is to take forward only a small number of the original 18 proposals we set out in the consultation and to stop development of the remainder.”

The move comes after Business Secretary Kemi Badenoch recently put plans on ice for legislation that would have paved the way for new governance reporting rules for large companies, with the Government citing the need to cut red tape for businesses.

Andrew Griffith, Economic Secretary to the Treasury, said the move by the FRC was “pragmatic”.

“The UK rightly enjoys a strong reputation for high governance standards, but it’s important that we don’t burden our best and brightest companies to the extent that it’s not a level playing field versus our international competitors,” he said.

It marks the latest in a series of delays and set backs to reforms of accounting regulation, which have been long-awaited since a number of high-profile corporate failures, such as the collapse of outsourcing giant Carillion and bakery chain Patisserie Valerie.

Michael Izza, chief executive of the Institute of Chartered Accountants in England and Wales (ICAEW), said the omission of audit reforms in the King’s Speech was a blow.

He said: “Carillion’s collapse almost six years ago marked a watershed moment for UK audit and corporate governance, but it appears that the Government’s promise of comprehensive reform will remain unfulfilled due to a lack of political will.”

“The attractiveness of the UK as a place to invest and do business is firmly based on the high quality of corporate transparency, governance, reporting and audit in this country.

“The Government’s faint-hearted attitude to protecting and maintaining that reputation does the economy no favours.”